EPF

[Vinay Surana]

Dear Members

I have come across a situation which is tricky one
The organisation is in existence for 4 years.The Problem is the company has not deducted EPF for last one year both Employer portion and Employee portion also.
On june 2012 there was an exparte assessement on the company and the whole amount was paid.The amount paid is only of PF collection, no penalty or interest has been levied

My question is whether the amount paid can be claimed has an expenses since in previous financial year we did not claim PF expenses since we did not paid nor it was disallowed.

Sec 36 talks of only when the sum is deducted right.i have not deducted the sum of PF from the employee,so whether can i claim Employee portion also as an expenses.

Pls revert back with Case laws.

[Vinay Surana]

Can anyone give your views on this instead of just seeing and moving out

Pls its an urgent query to solve

[ashutosh majumdar]

Here is my answer:

(i) I assume you are following the mercantile system of accounting;

(ii) As regards the employer's contribution, S. 43B allows a deduction for "any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees" on payment basis. Though the amounts accrued in the earlier years, they are allowable this year on payment basis;

(iii) As regards the employee's contribution, the assessee is required to collect it from the employees and pay it over. If the amount has been paid from the assessee's pocket, then does it have a right to recover it from the employees? If yes, then the amount paid may not be an "expenditure" as it has not gone "out and away" from the assessee's pocket. Assuming, the assessee has decided to bear the entire contribution itself, then it is not really "employees contribution" and so the bar in s. 36(1)(v) will not apply. The expenditure is allowable on grounds of "commercial expediency".

[Vinay Surana]

Thank you Sir !!!

Any case law supporting the explanations in 2 and 3

[Vinay Surana]

Once again No answer..only views are greater than replies in this forum  :'( >:( :-[ :-\ :-X

[ashutosh majumdar]

(i) 43B is quite clear in the language that the deduction shall be allowed in the year of payment irrespective of the method of accounting;

(ii) For the point that if the employer has a right to recover the amount from the employees, then there is no "expenditure", see Indian Molasses Co. (P) Ltd. v. Commissioner of    Income-tax, West Bengal, 37 I.T.R. 66 where it was held that "Expenditure' is thus what is 'paid out or away' and is some- thing which is gone irretrievably".

(iii) On the point of commercial expediency to support payments in respect of employees, one can rely on Commissioner Of Income-Tax, ... vs M/S. Walchand & Co. (Pvt.) Ltd 65 ITR 381 (SC), J.K. Woollen Manufacturers vs Commissioner Of Income-Tax, U.P 

The principles of law are nicely summed up here: http://www.incometaxindiapr.gov.in/incometaxindiacr/contents/DTL2011/casesec37(1).htm

[shobha nagrani]

Once again No answer..only views are greater than replies in this forum  :'( >:( :-[ :-\ :-X

That has always been the bane of this forum. So many knowledgeable people but nobody very few wants to share their knowledge. Only Ashutosh Sir and a few other seniors lends a helping hand sometimes. What I want to say is that knowledge spreads by sharing. No point being tight-fisted about it. So, people come on SHARE UR KNOWLEDGE!!

[Vinay Surana]

Thank u sir !!!  8) ;D
for ur valuable time provided with answers
Shoba Madamji Yo are right !!! 8) :o